Cava reports big earnings as steak launch and sales growth push stock to all-time high

CAVA is offering some tasty numbers to its investors.

After the market closed on Thursday, the Mediterranean fast-food chain reported second-quarter results that beat estimates across revenue, earnings and same-store sales.

The company’s shares jumped 9% in premarket trading early Friday, on track to hit an all-time high.

Net sales rose 35.2% year over year to $233.5 million, compared with expectations of $219 million. Adjusted earnings per share were $0.17, compared with expectations of $0.13.

Comparable store sales rose 14.4%, beating Wall Street expectations of 7.45%. Sales growth was driven by higher foot traffic (up 9.5% year over year), higher menu prices, new locations, and the launch of grilled steak On June 3.

The launch of the steakhouse has “exceeded our expectations,” CEO Brett Schulman said on the earnings call. The company is at a “consumer convergence crossroads” where consumers are moving away from fine dining and toward fast food.

“At a time when consumers are increasingly feeling the pressures of an uncertain economy and becoming more discerning about where and how they spend their money, they are choosing to dine at Cava,” he said.

Wedbush analyst Nick Setian said he expects “transaction trends to accelerate over the next two years, most notably the launch of steaks.”

On Wednesday, Kava’s stock hit a record high close of $102.39, and on Thursday, it hit an intraday high of $104.84 before closing at $101.98. In premarket trading on Friday, shares jumped to $111.

The company’s shares are up 137% so far this year, compared with 17% for both Chipotle (CMG) and the S&P 500 (^GSPC).

Cava’s approach to expansion is slow and steady. By 2032, the company plans to have 1,000 Cava locations.

There is still room for growth, Citi analyst John Tower said in a note to clients. “Unit growth opportunity that continues to recalibrate separate same-store sales, pricing and margin opportunities as the system ramps up, and margin tailwinds as the footprint shifts toward lower-cost markets.”

In the second quarter, Kava opened 18 new locations, bringing the total number of locations to 341. This is compared to 14 new locations in the first quarter.

In existing markets, there is still room to build more brand awareness, Schulman said. Other future growth drivers include the relaunch of the loyalty program in October and catering services.

The company aims to market its experiential catering services in major cities in 2025 and launch them nationwide in 2026.

The company currently has 10 digital kitchen hubs and 10 hybrid kitchen hubs in various locations, in addition to regular Cava locations testing catering.

The story continues

Kava continues to deliver at a time when fast-casual dining appears to be bucking the broader slowdown in the food industry as consumers double down on value.

“Kava was one of the few publicly traded restaurant brands to achieve positive traffic growth in the second quarter,” Schulman said. “We believe our performance is a reflection of our unique and compelling value proposition.”

He added that the company raised prices by 12% during the period from 2019 to 2023, stressing that this is less than the increases in fast food prices and grocery prices in general, according to consumer price index data.

“Now you have a situation where for an extra dollar or two you can get a bowl of fresh Mediterranean food for the same price as a traditional frozen, fried fast food,” he said.

Chipotle beat expectations in its report after comparable-store sales rose 11.1% year over year, versus the 9.23% Wall Street had expected. Shake Shack (SHAK) saw comparable-store sales rise 4%, beating estimates of 3.2%.

Sweetgreen (SG) reported its best same-store sales growth in two years, up 9%, driven by higher foot traffic and prices.

“We’re going to be very careful in how we use it,” CEO Jonathan Neiman told Yahoo Finance. [pricing power]Neiman claimed the chain has seen smaller price increases than its competitors since the pandemic hit.

“When you look at the relative price differential between Sweetgreen, some of our fast-casual competitors, and then QSRs, the gap has really narrowed. You can’t get in and out of a QSR for less than $15 today,” he told Yahoo Finance.

Here’s what Kava reported, compared to Wall Street estimates, according to Bloomberg Consensus data:

• profit: $233.5 million vs. $219.5 million

• Adjusted earnings per share:$0.17 vs $0.13

• same store sales growth: 14.4% vs 7.45%

The company raised its fiscal 2024 outlook for restaurant openings, sales growth and restaurant-level gross margin.

The company now expects sales growth of 8.5% to 9.5%, up from 4.5% to 6.5% in the first quarter and its previous forecast of 3% to 5%.

The total number of new restaurants is expected to range between 54 and 57, up from 50 to 54. The profit margin at the restaurant level is expected to range between 24.2% and 24.7%, up from 23.7% to 24.3%.

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Brooke DePalma is a Senior Reporter at Yahoo Finance. You can follow her on Twitter @Brooke De Palma Or email her at [email protected].

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